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Bookkeeping for Law firm

July 24, 2020 - by Priyan Sharma

Choosing how you structure and manage your law firm is one of the most important decisions your business makes. How will you accept payment? How will you manage trust accounts? And what accounting practices would you use to cut taxes and costs? It all depends on you.

Properly setting up your finances on time will not only make it easier for you to file your taxes every year but it will save you time, money, stress and possible legal headaches. So that you will have accurate financial statements in your hand, which can show you at any time how your practice is performing. And whenever you decide to sell your business, it will be very easy to work with bookkeepers, accountants, new partners and buyers.

If you are really serious about growing a business, then you need to join a highly experienced bookkeeper and CPA. 

With the tax return preparation, the CPA/ bookkeeper can help you:

  • Financial strategy
  • Trust Accounting
  • Tax planning
  • Tax compliance
  • Lease negotiations
  • Treasury management
  • Financial reporting

Every law firm is expected to manage financial activity properly and at the same time maintain a complete and accurate record of all transactions. Accurate monthly financial records help law firm owners be aware of.

It is certain that every law firm needs an accountant who manages more advanced financial functions. Adequate investment will be required to appoint an in-house bookkeeper, so law firms can outsource their bookkeeping.

Why Law Firm needs a Bookkeeper?

  • Law firms and lawyers can focus their attention entirely on the firm’s activities such as managing cases and clients, and business development tasks like networking, administration, accounting, etc.
  • All types of billable activities should be tracked and simultaneously generated time-to-time invoices.
  • Tax and GST activities should be performed over time, which cannot be managed by the lawyers.
  • Cash flow complexities can usually arise if business and personal finance are being spent from a single bank account for a difficult bookkeeping process.
  • Irregularity or late generation of financial statements in financial reports can lead to negative credibility of the law firm.
  • Tracking receipts and maintaining them systematically is a significant challenge for law firms.
  • Bank accounts should be reconciled every month and financial metrics should be made available.

The Basic Principles of Bookkeeping for Law Firm:

1. Track Everything:

At least tracking client billable activities is essential. A proper system should be employed to track the working hours of the law firm’s clients, billing them and tracking their payments on receipt.

2. Laser Recording:

Today every bookkeeper holds financial accounts and transactions. Each page of the same ledger represents an account from the chart of accounts. The account holder should provide the history of each transaction and the current balance in the account and in the accounting period, whereby the account holder regularly provides a summary of income and expenses.

3. Assessing the profit/loss report:

After preparing the transaction and financial report, the law firm can check the financial condition and health of the law firm’s business. The rule of thumb is that every debit must have the same credit and all accounts must be balanced. With all the data collected in one place on the income and expenditure of law firms, analysis needs to be done to find out what profit/loss the law firm is making.

Good bookkeeping is an important part of a growing law firm. By outsourcing law firm bookkeeping, core time can be saved and enhance the internal system of the organization. It also provides detailed, accurate and time-bound records that can prove invaluable in case of decision-making or audit scenarios.

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